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7th Edition: Trends in Marketing Communications Law

Cannabis/CBD Advertising >> Navigating High Stakes Issues in a Budding Industry

October 6, 2020

Last year was a watershed moment for the cannabis and hemp industries. And despite the widespread impacts of COVID-19 on the U.S. economy, if those developments are any indication, the years ahead will bring significant changes to the burgeoning field.

The monumental change of descheduling hemp from the Controlled Substances Act in 2018 means that, for the first time, hemp and hemp-derived cannabidiol products (CBD) (which are cannabis with less than 0.3% tetrahydrocannabinol (THC)) are no longer controlled substances under federal law. As a result, an entire new industry of CBD salves, edibles, tinctures and other products quickly sprung up.

Legislatures and regulators are playing catch-up to the rapidly expanding business opportunity. In response to hemp’s descheduling, many states updated their laws to allow, and attempt to regulate, the sale of hemp and CBD products. The Federal Trade Commission (FTC) and Food and Drug Administration (FDA) issued numerous joint warning letters to CBD advertisers, reinforcing the critical point that, just because the product is newly legalized does not mean that advertising can contain unsubstantiated or deceptive claims about its benefits or medicinal properties. Additionally, although the use of CBD in foods, beverages and dietary supplements remains illegal, the FDA indicated it is open to issuing regulations to allow the use of CBD in these products depending on information it receives from the industry.

On the marijuana front, both medical and recreational marijuana remain illegal at the federal level (the Farm Bill only de-scheduled hemp), but states continue to press ahead with contradicting laws. Michigan and Illinois both finalized regulations to allow the purchase and sale of recreational marijuana. While other states will follow suit, California, which legalized recreational marijuana in 2016, identified THC as a reproductive toxicant in 2019, and, beginning in 2021, it will be added it to the list of chemicals that require a “Prop 65” disclosure.

Over ten states are expected to attempt to legalize or expand the legalization of cannabis for adult use, which will further complicate the patchwork of relevant laws.

Congress is not expected to take any meaningful steps to introduce legislation that would create a harmonized set of rules for the industry anytime soon, so marketers and their agencies will have to continue adapting to rapidly changing state regulations. And state regulations will evolve further, as the three last holdout states are likely to legalize CBD, and several others will issue statutorily-required regulations governing its production, sale and advertising.

Separately, the federal Secure and Fair Enforcement Banking Act (SAFE Banking Act) was passed by the House of Representatives and is expected to potentially go to the Senate for a vote at some point. If passed, it would allow banks to work with cannabis businesses that are currently forced to work almost entirely in cash, which, in turn, often requires agencies working with such businesses to accept cash payments. The passage of the SAFE Banking Act would allow cannabis businesses to operate like non-cannabis businesses and pay agencies by wire.

Key Takeaways:

  • The patchwork of state laws governing the advertising and marketing of cannabis and CBD products continues to pose challenges for marketers and their agencies.
  • Moving forward, marketers and their agencies will need to quickly adapt to changing laws in order to ensure that their marketing and advertising complies with new and changing state laws.